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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 576:
Information Updating and Insurance Dropout: Evidence from Dental Insurance

Erik Grönqvist ()

Abstract: Micro data from a dental insurance natural experiment is used to analyze why agents opt out of insurance. The purpose is to relate the dropout decision to new information on risk, acquired by the policy holder and the insurer. The results show that agents tend to leave the insurance when reclassified into higher premium classes, or when experiencing unexpectedly low dental care utilization within the insurance. They are more responsive to higher premiums than to lower expected utilization. The results show updating on dental risk to be asymmetric, giving agents and insurer partly different information sets. Higher premiums are viewed as higher prices of insurance rather than fair risk reassessments. Agents do not take the insurer's information fully into account, even though it is public. The decision is also based on old information.

Keywords: Asymmetric Information; Adverse Selection; Learning; Health Insurance; (follow links to similar papers)

JEL-Codes: D82; D83; G22; I11; (follow links to similar papers)

28 pages, November 28, 2004

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